Liverpool have begun the search for their fourth manager in four seasons, having sacked Kenny Dalglish for failing to replicate cup success with a challenge for Champions League qualification. Fenway Sports Group, the club's owners, face costs comparable to the £8.4m spent replacing Roy Hodgson and his backroom staff for ending the Anfield legend's second spell as manager after only 16 months.

André Villas-Boas, the former Chelsea manager, Jürgen Klopp of Borussia Dortmund and Marseille's Didier Deschamps are among the candidates to succeed Dalglish, who signed a three-year contract 12 months ago but paid the price for Liverpool's lowest league finish for 18 years. Steve Clarke, Dalglish's assistant, has also left the club out of loyalty to his fellow Scot.

Dalglish was informed of the decision by John W Henry, Liverpool's principal owner, and the chairman, Tom Werner, as he prepared to go on holiday on Wednesday. The 61-year-old had flown to Boston for face-to-face talks with his employers after the final game of the season at Swansea City on Sunday, a move prompted by concern at the lack of assurances over his position since Liverpool lost the FA Cup final to Chelsea on 5 May. No assurances were forthcoming in the United States and Dalglish returned to Merseyside on Tuesday prepared for the worst.

The Scot issued a staunch defence of his reign both in public last Friday and during the meeting with Henry and Werner, at which he also outlined plans to improve the squad for a top-four finish next season. He cited success in the Carling Cup, an FA Cup final appearance and Europa League qualification as evidence of progress in his first full season back in charge. Liverpool's owners, however, were unconvinced the club could achieve Champions League qualification under Dalglish and doubted his transfer acumen following a meagre contribution last season from Andy Carroll, Stewart Downing and Jordan Henderson, part of the £120m investment in new players since January 2011.

A club statement confirmed: "After a careful and deliberative review of the season, the club came to the decision that a change was appropriate. It is not a decision that was reached lightly or hastily. The search for a new manager will begin immediately."

The departures of Dalglish and Clarke follow those of Damien Comolli, Dr Peter Brukner and Ian Cotton from Anfield in recent weeks, leaving Liverpool without a manager, assistant manager, director of football, head of sports science and head of communications. Werner, however, insisted FSG had no option but to sack Dalglish after Liverpool ended the season eighth in the Premier League, four points behind Everton, 17 behind fourth placed Tottenham Hotspur and 37 behind the champions, Manchester City.

Liverpool's chairman said: "Kenny came into the club as manager at our request at a time when Liverpool Football Club really needed him. We owe him a great debt of gratitude. However, results in the Premier League have been disappointing and we believe to build on the progress that has already been made, we need to make a change. We are committed to delivering success for our supporters and our ambition remains resolute to return this great club to the elite of England and Europe, where it belongs."

FSG are believed to want a manager with title-winning experience, and who can lead Liverpool long-term, to replace Dalglish. That criteria would appear to rule out Roberto Martínez of Wigan Athletic. Another bookmakers' favourite, former Liverpool manager Rafael Benítez, is unlikely to be in the frame.

Klopp has won two successive Bundesliga championships with Borussia Dortmund including a league and cup double this season, and his achievements on a modest budget in Germany would attract Liverpool's owners. Tempting the 44-year-old out of the Champions League amid fierce competition should Klopp become available, however, may be difficult. Deschamps, who won the French title with Marseille in 2010, held talks with Liverpool over succeeding Benítez but admitted the time was not right to leave Marseille. Villas-Boas was under consideration when he was still at Porto and, despite his ill-fated reign at Chelsea, now has the advantage of being available and free of the £15m release clause Roman Abramovich paid to bring the 34-year-old to Stamford Bridge.

Dalglish departed with one last defence of his second Liverpool reign. "I feel proud that we delivered the club's first trophy in six years, winning the Carling Cup, and came close to a second trophy in the FA Cup final," he said. "Of course, I am disappointed with results in the league, but I would not have swapped the Carling Cup win for anything as I know how much it meant to our fans and the club to be back winning trophies.

"Whilst I am obviously disappointed to be leaving the football club, I can say that the matter has been handled by the owners and all concerned in an honourable, respectful and dignified way and reflects on the quality of the people involved and their continued desire to move the football club forward in the same way as when they arrived here."